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Oil price drops $2 a barrel on higher domestic supplies

Oil prices sank more than $2 a barrel Wednesday on rising crude supplies in the United States, a strengthening dollar and signs that China's energy appetite, while growing, has its limits.

Rising interest rates, which could slow economic growth and energy demand, were a factor. Brokers noted that technical and speculative trading magnified the selloff.

"When you run up quickly, you can also come off very quickly," said Tom Bentz, a broker with BNP Paribas Commodity Futures in New York.

Light, sweet crude fell $2.22, or 4 percent, to settle at $53.81 per barrel on the New York Mercantile Exchange, where oil futures are down nearly $4 a barrel since the intraday high of $57.60 set March 17.

In London, Brent crude for May delivery settled at $53.04, down $1.55 on the International Petroleum Exchange.

Oil is roughly 45 percent more expensive than a year ago but well below the inflation-adjusted peak above $90 a barrel set in 1980.

Prices at the pump are soaring. Nationwide, a gallon of regular unleaded averages $2.11, up 21 percent from a year ago, with half of that gain coming in the past month.

Unleaded gasoline for April delivery settled unchanged on Nymex at $1.5749 per gallon. But after markets closed, gasoline futures zoomed nearly 2 cents higher in electronic trading because of an explosion at an expansive BP refinery complex in Texas that produces 3 percent of the gasoline consumed in the United States.

Tom Kloza, director of Oil Price Information Service, said the refinery may not be able to produce as much premium gasoline, though he said the accident should not cause major supply constraints.

For the moment, the country has an ample supply of gasoline, Kloza said. They cited the latest U.S. Energy Department report, which showed inventories of gasoline 8 percent higher than a year ago despite a decline of 4.1-million barrels last week to 217.3-million barrels.

The agency also said in its weekly report that crude oil inventories rose by 4.1-million barrels last week to 309.3-million barrels, or 8 percent above year ago levels.

The rise in U.S. oil supplies coincided with evidence that the growth in oil demand in China may be slowing.

"The whole Asian region is now in the process of lower growth demand," said Frederic Lasserre of SG Securities of Paris.

[Last modified March 24, 2005, 01:19:16]